DEVELOPING STORY Suburban Federal closed by regulators

CalPERS investment chief sees 'no place to hide' in markets

There doesn’t appear to be a lot of philosophical or practical daylight between Joseph A. Dear, the new chief investment officer of the country’s largest public pension fund, and the labor-oriented board that hired him.

And he doesn't see much daylight in gloomy financial markets, either.

Dear, 57, is leaving a similar post at the Washington State Investment Board to run the $177-billion portfolio at the much larger, 1.6-million-member California Public Employees’ Retirement System, or CalPERS. He’ll start at CalPERS’ Sacramento high-rise headquarters on March 2.

"The job I had here at Washington State is similar to the job at CalPERS, though CalPERS is on a larger scale," Dear said in an interview today. He said he believed that his combination of experience in investment management and public administration was "what CalPERS was looking for."

Dear concedes that he faces both "a challenge and an opportunity" in helping the giant pension fund stabilize its value and try to recoup a stunning loss of $62.4 billion, or 26%, since July 1, as financial markets worldwide plummeted.

Not surprisingly, Dear indicated that he’s in sync with the fund’s 13-member board of directors on the broad issues of protecting healthcare and defined-benefit retirement security for the state, local government, school district and public university employees who participate in the system.

Fixed pensions, unlike the increasingly more common 401(k) retirement savings programs, "are a major tool for securing economic security in retirement," he said. "It’s of interest to everyone in the country and the state of California."

But from the viewpoint of non-government workers, the risk is that CalPERS' investments won't be sufficient to cover promised benefits -- leaving taxpayers to pony up, at a time when their own retirement savings have dwindled. . . .

CalPERS already has warned state and local government units that they may have to increase contributions to the fund to preserve promised benefits if the portfolio doesn’t recover.

Dear cautioned that "there’s no place to hide for any investor in this environment." But he stressed that large institutional investors such as CalPERS must "maintain the courage of convictions [as] long-horizon investors."

Though he declined to address in detail any of CalPERS’ investment policies, Dear said he agreed with the fund’s program of maintaining an increasingly diverse portfolio of investments, which includes domestic and foreign stocks, corporate bonds, real estate, private equity funds and commodities.

But with markets volatile and asset values still falling in many sectors, it’s also important for CalPERS to periodically reevaluate its mix of holdings, he said. That process is at the top of the CalPERS board’s to-do list for this spring, the fund announced late last year.

CalPERS has stumbled badly with some of its real estate investments, in particular, over the last year.

Stemming losses and planning for the future are essential tasks during a deep economic recession with no recovery imminent, Dear said.

"What we have to see is a return of more normal functioning of the credit markets and stabilization of housing prices," he said.

But "who knows" when those turnarounds will come? he said.

-- Marc Lifsher

Photo: Joe Dear. Credit: Washington State Investment Board

Stocks End January With a Big Loss

ABC News’ Daniel Arnall reports: The first month of 2009 ended with the Dow at 8000, down 8.84 percent for the month. We’ve had worse months recently (see October’s miserable performance), but this particular red arrow month is worrying some of the folks on Wall Street more than a sour October.

Why? In the Dow’s entire 112-year history, January has accurately predicted the year’s direction 75 percent of the time. So a big loss in January is a bad portent for the year in investing.

It gets even worse. In the past 30 years, the Dow’s January performance has been an even greater predictor, matching 26 years, or 87 percent, of the time.

As with everything on Wall Street, it comes with a big disclaimer: Past performance does not guarantee future results.

Call for global economy rules

DAVOS (Switzerland) - GERMAN Chancellor Angela Merkel and British Prime Minister Gordon Brown argued on Friday for tougher control of the international economy, opening up a potential split with the United States on ending the financial crisis.

Dr Merkel said a UN economic council based on the UN Security Council may have to be created to police the global economy, while Mr Brown said his 'shared revolution' would strengthen current international institutions.
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